SEC News Digest

Commission announcements

The Securities and Exchange Commission has amended its rules to exclude the value of a person’s home from net worth calculations used to determine whether an individual may invest in certain unregistered securities offerings. The changes were made to conform the SEC’s definition of an “accredited investor” to the requirements of the 2010 Dodd-Frank Wall Street Reform and Consumer Protection Act.

Under the amended rule, the value of an individual’s primary residence will not count as an asset when calculating net worth to determine “accredited investor” status. The amendments also clarify the treatment of borrowing secured by a primary residence for purposes of the net worth calculation. Under certain circumstances, they also permit individuals who qualified as accredited investors under the pre-Dodd-Frank Act definition of net worth to use that prior net worth standard for certain follow-on investments.

SEC rules permit certain private and limited offerings to be made without registration, and without requiring specified disclosures, if sales are made only to “accredited investors.” One way individuals may qualify as “accredited investors” is by having a net worth, alone or together with their spouse, of at least $1 million. The Dodd-Frank Act requires that the value of a person’s primary residence be excluded from the net worth calculation used to determine the person’s “accredited investor” status.

Under the amended net worth calculation, indebtedness secured by the person’s primary residence, up to the estimated fair market value of the primary residence, is not treated as a liability, unless the borrowing occurs in the 60 days preceding the purchase of securities in the exempt offering and is not in connection with the acquisition of the primary residence. In such cases, the debt secured by the primary residence must be treated as a liability in the net worth calculation. This is intended to prevent manipulation of the net worth standard, by eliminating the ability of individuals to artificially inflate net worth under the new definition by borrowing against home equity shortly before participating in an exempt securities offering. In addition, any indebtedness secured by a person’s primary residence in excess of the property’s estimated fair market value is treated as a liability under the new definition.

The amended net worth standard will take effect 60 days after publication in the Federal Register. Beginning in 2014, and every four years thereafter, the Dodd-Frank Act requires the Commission to review the “accredited investor” definition in its entirety and to engage in further rulemaking to the extent it deems appropriate.

SEC has now proposed or adopted more than three-quarters of the rules that the Dodd-Frank Act required the agency to write. (Press Rel. 2011-274)

Enforcement Proceedings

In the Matter of Eric Jon Strasser

On December 21, 2011, the Commission issued an Order of Suspension Pursuant to Rule 102(e)(2) of the Commission’s Rules of Practice (Order) against Eric Jon Strasser. The Order finds that Strasser has been convicted of a felony and forthwith suspends him from appearing or practicing before the Commission. (Rel. 34-66024; AAE Rel. 3349; File No. 3-14674)

Delinquent Filers’ Stock Registrations Revoked

The registrations of the registered securities of Medarts Medical System, Inc., and New Fiber Cloth Technology, Inc. (f/k/a Park Hill Capital III), have been revoked. Each had repeatedly failed to file required annual and quarterly reports with the Securities and Exchange Commission. Thus, each violated a crucial provision of the federal securities laws that requires public corporations to publicly disclose current, accurate financial information so that investors may make informed decisions. The revocations were ordered in an administrative proceeding before an administrative law judge. (Rel. 34-66025; File No. 3-14601)

In the Matter of Rovac Corp.

An Administrative Law Judge has issued an Order Making Findings and Revoking Registrations by Default (Default Order) in Rovac Corp., Admin. Proc. No. 3-14617. The Order Instituting Proceedings alleged that Respondents repeatedly failed to file required annual and quarterly reports while their securities were registered with the Securities and Exchange Commission. The Default Order finds these allegations to be true and revokes the registration of each class of registered securities of Rovac Corp., RS Group of Companies, Inc., Rymer Foods, Inc., Stratus Services Group, Inc., Sun Cal Energy, Inc., Sun Motor International, Inc., Surebet Casinos, Inc., and Swiss Medica, Inc., pursuant to Section 12(j) of the Securities Exchange Act of 1934. (Rel. 34-66026; File No. 3-14617)

Commission Revokes Registration of Securities of Stelax Industries, Ltd. For Failure to Make Required Periodic Filings

On December 22, 2011, the Commission revoked the registration of each class of registered securities of Stelax Industries, Ltd. (Stelax Industries) for failure to make required periodic filings with the Commission.

Without admitting or denying the findings in the Order, except as to jurisdiction, which it admitted, Stelax Industries consented to the entry of an Order Making Findings and Revoking Registration of Securities Pursuant to Section 12(j) of the Securities Exchange Act of 1934 as to Stelax Industries, Ltd. finding that it had failed to comply with Section 13(a) of the Securities Exchange Act of 1934 (Exchange Act) and Rules 13a-1 and 13a-13 thereunder and revoking the registration of each class of Stelax Industries’ securities pursuant to Section 12(j) of the Exchange Act. This Order settled the proceedings brought against Stelax Industries in In the Matter of RMD Technologies, Inc., et al., Administrative Proceeding File No. 3-14616.

Brokers and dealers should be alert to the fact that Exchange Act Section 12(j) provides, in pertinent part, as follows:

No member of a national securities exchange, broker, or dealer shall make use of the mails or any means or instrumentality of interstate commerce to effect any transaction in, or to induce the purchase or sale of, any security the registration of which has been and is suspended or revoked . . . .

Commission Revokes Registration of Securities of Singer Co. N.V. For Failure to Make Required Periodic Filings

On December 22, 2011, the Commission revoked the registration of each class of registered securities of Singer Co. N.V. (Singer Co.) for failure to make required periodic filings with the Commission.

Without admitting or denying the findings in the Order, except as to jurisdiction, which it admitted, Singer Co. consented to the entry of an Order Making Findings and Revoking Registration of Securities Pursuant to Section 12(j) of the Securities Exchange Act of 1934 as to Singer Co. N.V. finding that it had failed to comply with Section 13(a) of the Securities Exchange Act of 1934 (Exchange Act) and Rules 13a-1 and 13a-13 or 13a-16 thereunder and revoking the registration of each class of Singer Co.’s securities pursuant to Section 12(j) of the Exchange Act. This Order settled the proceedings brought against Singer Co. in In the Matter of Shengtai Power International, Inc., et al., Administrative Proceeding File No. 3-14637.

Brokers and dealers should be alert to the fact that Exchange Act Section 12(j) provides, in pertinent part, as follows:

No member of a national securities exchange, broker, or dealer shall make use of the mails or any means or instrumentality of interstate commerce to effect any transaction in, or to induce the purchase or sale of, any security the registration of which has been and is suspended or revoked . . . .

The Commission today announced the entry of a judgment against Robert Wilson and two of his companies, Strategic Capital and Green Horseshoe Holdings, Inc. The Commission previously alleged that Wilson and Strategic Capital conducted a blast fax campaign concerning China Voice Holding Corp., which contained false and misleading statements and failed to accurately disclose the amount and source of the compensation Wilson, Strategic Capital, and Green Horseshoe Holdings, Inc. received.

Without admitting or denying the allegations in the complaint, Wilson and Strategic Capital consented to entry of a judgment enjoining them from violations of Section 17(b) of the Securities Act of 1933 and Section 10(b) of the Securities Exchange Act of 1934 and Rule 10b-5 thereunder. The judgment also provided that upon motion of the Commission, the Court may order disgorgement of ill-gotten gains and prejudgment interest thereon against Wilson, Strategic Capital, and Green Horseshoe Holdings, Inc., civil penalties in amounts the Court deems appropriate against Wilson and Strategic Capital, and a penny stock bar against Wilson. The judgment was entered on December 21, 2011. [SEC v. David Ronald Allen, et al., Civil Action No. 3:11-CV-882-O (N.D. Tex.)] (LR-22208)

The Securities and Exchange Commission announced that on December 21, 2011, United States District Court Judge Susan D. Wigenton entered a final judgment ordering defendants Alfred S. Teo, Sr. and the MAAA Trust, a trust Teo controlled, to pay a total of $49,493,143.15 in disgorgement, prejudgment interest and penalties for false filings regarding their Musicland Stores Corporation stock. In particular, the Court ordered Teo and the Trust to pay $17,422,054.13 in disgorgement plus $14,649,034.89 in prejudgment interest, and civil penalties of $17,422,054.13. These amounts are in addition to (i) $996,782.68 in disgorgement and prejudgment interest Teo paid for his insider trading violations pursuant to the Court’s previous order of March 15, 2010, and (ii) a $1 million fine that Teo paid in a parallel criminal action for insider trading. The Court also enjoined Teo and the Trust from further violations of Sections 13(d) and 16(a) of the Securities Exchange Act of 1934 and Rules 13d-1, 13d-2 and 16a-3 thereunder. Previously, the Court had enjoined Teo from further violations of Sections 10(b) and 14(e) of the Exchange Act and Rules 10b-5 and 14e-3 thereunder, and barred him from serving as an officer and director of a public company.

On May 25, 2011, following a ten day trial, a jury sitting in Newark, New Jersey returned a verdict in favor of the Commission finding Teo liable for securities fraud and disclosure violations on all counts against him and finding the Trust liable for disclosure violations. Prior to the trial, on August 10, 2010, the Court granted the Commission’s motion for summary judgment against Teo finding him liable for violations of Section 16(a) of the Exchange Act and Rule 16a-3 thereunder.

The Commission’s complaint, filed on April 22, 2004, charged Teo and others with insider trading and making false Commission filings. Specifically, Teo and ten of his relatives, friends and colleagues engaged in insider trading in Musicland and C-Cube Microsystems, Inc. stock. Teo, a major Musicland shareholder, learned about a tender offer for Musicland, and in breach of a duty of trust and confidence to Musicland, he purchased Musicland stock on the basis of this information prior to the company’s December 7, 2000 public announcement of the tender offer. Teo tipped eight others with this information, who purchased Musicland stock prior to the Musicland announcement. Teo also engaged in insider trading in the securities of C-Cube. Teo, a director of Cirrus Logic, Inc., which had been negotiating to acquire C-Cube, misappropriated from Cirrus material, non-public information regarding the negotiations, and he purchased C-Cube stock shortly before C-Cube announced on March 26, 2001 that it had agreed to be acquired by another company. Teo tipped his business partner, defendant Mitch Sacks, with this information, who purchased C-Cube stock prior to the C-Cube announcement. Teo also filed false information with the Commission and deceived the investing public regarding his Musicland stock ownership. Between July 1998 and January 2001, Teo, the Trust, and Teren Seto Handelman, the Trust’s trustee and Teo’s sister-in-law, filed multiple false and misleading Forms 13D with the Commission, and failed to make required filings, thereby materially misrepresenting their ownership of Musicland stock. Teo made false filings to avoid triggering Musicland’s shareholders rights plan, or “poison pill,” which Teo understood would have significantly diluted his stock causing massive losses to him. Instead, Teo’s fraud enabled him to secretly purchase millions of Musicland shares well above the poison pill threshold, which he eventually sold, receiving illicit profits.

Between May 3, 2004, and January 3, 2011, the Court entered final judgments against Teo’s tippees: defendants Teren Seto Handelman (Teo’s sister-in-law), Mitch Sacks (Teo’s business partner), Phil Sacks (Teo’s tennis partner and Mitch Sacks’ father), John Reier (CFO of Teo’s companies), Larry Rosen (Teo’s friend), Rich Herron (Teo’s yachting friend), Charles Fortune, Jerrold Johnston and Mark Lauzon (Teo’s business associates), David Ross (Teo’s yacht builder), and relief defendant James Ruffolo. These defendants and relief defendant consented to the entry of judgments without admitting or denying the allegations in the Commission’s complaint. On March 15, 2010, the Court entered a partial judgment on consent against Teo to settle the Commission’s insider trading charges against him, and the Court ordered him to pay $996,782.68 in disgorgement plus prejudgment interest, enjoined him against further violations of Sections 10(b) and 14(e) of the Exchange Act and Rules 10b-5 and 14e-3 thereunder, and barred him from serving as an officer or director of any public company. Prior to the December 21, 2011 final judgment, the Court ordered a total of $3,869,647.76 in disgorgement, prejudgment interest and civil penalties against Teo and his tippees.

In a separate action, the United States Attorney’s Office for the District of New Jersey prosecuted Teo for violations of the federal securities laws. On June 27, 2006, after a six week trial, Teo pled guilty to insider trading charges. Thereafter, on February 6, 2007, Teo was sentenced to 30 months in prison, followed by two years supervised release and ordered to pay a $1 million fine. United States v. Alfred S. Teo, 04-Cr.-583 (KSH) (D.N.J.)

Teo, age 65 and a resident of Kinnelon, New Jersey and Fisher Island, Florida, is the Chairman of several private companies which produce industrial plastics. Teo’s companies are some of the largest producers of plastic bags in North America. Teo was a director and audit committee member of two public companies: Navarre Corp. from May 1, 1998 to April 22, 2004; and Cirrus from July 21, 1998 to April 10, 2001.

The Commission expresses its appreciation to the United States Attorney’s Office for the District of New Jersey and the New York Stock Exchange for their assistance in this matter. [SEC v. Alfred S. Teo, Sr., et al., Civil Action No. 04-1815-SDW-MCA (D. N.J.) (LR-22209)

Investment company act releases

An order has been issued on an application filed by AllianceBernstein Cap Fund, Inc., AllianceBernstein L.P. and AllianceBernstein Investments, Inc. under Section 6(c) of the Investment Company Act of 1940 (Act) for an exemption from Rule 12d1-2(a) under the Act. The order permits open-end management investment companies relying on Rule 12d1-2 under the Act to invest in certain financial instruments. (Rel. IC-29892 - December 21)

Self-Regulatory Organizations

Immediate Effectiveness of Proposed Rule Changes

A proposed rule change submitted by The NASDAQ Stock Market LLC to modify fees for co-location services (SR-NASDAQ-2011-160) has become effective pursuant to Section 19(b)(3)(A) of the Securities Exchange Act of 1934. Publication is expected in the Federal Register during the week of December 26. (Rel. 34-66010)

A proposed rule change submitted by NASDAQ OMX BX, Inc. to modify fees for co-location services (SR-BX-2011-081) has become effective pursuant to Section 19(b)(3)(A) of the Securities Exchange Act of 1934. Publication is expected in the Federal Register during the week of December 26. (Rel. 34-66015)

A proposed rule change submitted by NASDAQ OMX PHLX LLC to modify the fee schedule for co-location services (SR-Phlx-2011-164) has become effective pursuant to Section 19(b)(3)(A) of the Securities Exchange Act of 1934. Publication is expected in the Federal Register during the week of December 26. (Rel. 34-66016)

A proposed rule change filed by the Financial Industry Regulatory Authority, Inc. related to the extension of a TRACE pilot program (SR-FINRA-2011-072) has become effective pursuant to Section 19(b)(3)(A) of the Securities Exchange Act of 1934. Publication is expected in the Federal Register during the week of December 26. (Rel. 34-66018)

Approval of Proposed Rule Changes

The Commission approved a proposed rule change submitted by NASDAQ OMX PHLX LLC (SR-Phlx-2011-142), pursuant to Section 19(b)(1) of the Securities Exchange Act of 1934 and Rule 19b-4 thereunder, to modify its co-location fee schedule regarding low latency network connections. Publication is expected in the Federal Register during the week of December 26. (Rel. 34-66011)

The Commission approved a proposed rule change submitted by NASDAQ OMX BX, Inc. (SR-BX-2011-073), pursuant to Section 19(b)(1) of the Securities Exchange Act of 1934 and Rule 19b-4 thereunder, to modify Rule 7034 regarding low latency network connections. Publication is expected in the Federal Register during the week of December 26. (Rel. 34-66012)

The Commission approved a proposed rule change submitted by the NASDAQ Stock Market LLC (SR-NASDAQ-2011-146), pursuant to Section 19(b)(1) of the Securities Exchange Act of 1934 and Rule 19b-4 thereunder, to modify Rule 7034 regarding low latency network connections. Publication is expected in the Federal Register during the week of December 26. (Rel. 34-66013)

The Commission approved a proposed rule change submitted under Rule 19b-4 by the Financial Industry Regulatory Authority, Inc. (SR-FINRA-2011-063) relating to amendments to the Order Audit Trail System Rules. Publication is expected in the Federal Register during the week of December 26. (Rel. 34-66021)

The Commission approved a proposed rule change filed by NASDAQ OMX PHLX LLC (SR-Phlx-2011-136) pursuant to Section 19(b)(1) of the Securities Exchange Act of 1934 relating to transfer of exchange house accounts. Publication is expected in the Federal Register during the week of December 26. (Rel. 34-66022)

The Commission approved a proposed rule change filed by NASDAQ OMX PHLX LLC (SR-Phlx-2011-118), pursuant to Section 19(b)(1) of the Securities Exchange Act of 1934, relating to transfer of positions off the floor. Publication is expected in the Federal Register during the week of December 26. (Rel. 34-66023)

Securities Act Registrations

The following registration statements have been filed with the SEC under the Securities Act of 1933. The reported information appears as follows: Form, Name, Address and Phone Number (if available) of the issuer of the security; Title and the number and/or face amount of the securities being offered; Name of the managing underwriter or depositor (if applicable); File number and date filed; Assigned Branch; and a designation if the statement is a New Issue.

Amendments to the Registrant's Code of Ethics, or Waiver of a Provision of the Code of Ethics

5.06

Change in Shell Company Status

6.01

ABS Informational and Computational Material.

6.02

Change of Servicer or Trustee.

6.03

Change in Credit Enhancement or Other External Support.

6.04

Failure to Make a Required Distribution.

6.05

Securities Act Updating Disclosure.

7.01

Regulation FD Disclosure

8.01

Other Events

9.01

Financial Statements and Exhibits

8-K reports may be viewed in person in the Commission's Public Reference Branch at 100 F Street, N.E., Washington, D.C. To obtain paper copies, please refer to information on the Commission's Web site at http://www.sec.gov/answers/publicdocs.htm. In most cases, you can view and download this information by using the search function located at http://www.sec.gov/edgar/searchedgar/companysearch.html.